Beijing boosts influence in state-owned enterprises
State-owned enterprises are required to establish a Party Committee to support government policies
High on the priorities of most listed companies will be the main goal of putting shareholders first and keeping them happy.
Things are a little different when it comes to Chinese state-owned enterprises (SOEs).
Over the last 18 months, a total of 123 SOEs, or over 5% of Hong Kong-listed companies, were found to have changed their constitutions to enlarge the influence of the Communist Party of China in their boardrooms, Apple Daily reported on Wednesday, citing a review on the companies’ public announcements.
Those affected included eight blue-chip companies, numbering among them banking giants such as China Construction Bank, Industrial and Commerce Bank of China, Bank of China and Bank of Communications. Also listed in the report were oil giants PetroChina and Sinopec, coal mining company China Shenhua and the Citic conglomerate.
The latest such amendment was made by Shenzhen Expressway Company, which informed its shareholders of its board decision on Sept. 20. It outlined an amendment to its articles of association to incorporate Communist Party-building related content in accordance with the Company Law of China.
The company said it will establish an organization under the Communist Party of China to set up a working institution for the Party, assign working staff for Party affairs, and to undertake activities on behalf of the Party. Party Committee expenses will be met by the company.
The Party Committee is responsible for strengthening and improving the Party’s influences in areas including ideological and organizational, and those related to work style, anti-corruption and institutional development. It is also responsible for studying the Party’s policies and China’s laws and regulations, and will pay particular heed to the important meetings, documents, decisions, resolutions and instructions being passed down by senior members of the party and the government.
The amendment followed a development at China Aluminum International Engineering, a subsidiary of the Aluminum Corporation of China, which in March 2017 spelled out constitutional changes that included the establishment of the Party Committee, which comprised a party secretary, a deputy party secretary and a certain number of Party Committee members.
For a very long time, the party had followed an unwritten practice that it would assign a member to be the chairman, the party secretary and the trade union chief in each of the SOEs. It was also understood that the party made all the important decisions, including personnel changes and disciplinary actions in state-owned enterprises to better control the nation’s assets.
Now, for the first time, this practice has been put in writing in SOEs’ constitutions.
Investors are concerned that the influence of the party in SOEs will be so strong that corporate decisions will be driven less by market rules and focus more on national interests. If so, shareholders’ interests will be undermined.
That will also pose challenges if a state-owned company operates outside the party line, causing the party to step in to make sure its interests are protected ahead of those of other shareholders.
For example, Huishang Bank, a provincial bank, will give 1% of its staff overhead of 1.29 billion yuan to the party, which will spend the funds on party education and activities, and on incentives to advanced grass-roots level workers and outstanding Communist Party members.
Corporate activist David Webb said Hong Kong Exchanges & Clearing (HKEx) should not have allowed the SOEs’ largest shareholders to vote in these amendments. Webb said the central government should gradually reduce its control over SOEs in order to improve the economy.
Christopher Cheung Wah-fung, a Hong Kong Legislative Council member representing the Financial Services constituency, said the amendments may hurt minority shareholders’ interests. For example, SOEs’ profitability will be hurt if they are forced to follow Beijing by investing in long-term projects under the Belt and Road Initiatives.
The Pro-Beijing lawmaker said the amendments could be a throw-back to the days when China’s market economy was less well-developed.